First Take

Geithner stays and the market tanks

Commentary: There’s nowhere to hide after wave of crises

WASHINGTON (MarketWatch) — So, Treasury Secretary Timothy Geithner will be staying on the job, and the market immediately tanks.

Of course, that is very unfair to Geithner, but there’s a kernel of truth to it. It’s not simply that the U.S. economy is in danger of falling back into recession (on cue — “we never left it”), or that the euro-zone debt situation threatens to spiral out of control. It’s that there is a lack of confidence globally that these problems can be addressed by policy makers.

If there’s anything that the debt-ceiling debate demonstrated, it’s that current politics don’t allow for stimulus, whether that’s new spending the White House prefers or the tax breaks Republicans favor. Even relatively minor initiatives can’t get through; no-brainers like reauthorizing funding for the Federal Aviation Administration are locked in byzantine battles.

Across town at the Federal Reserve, central bankers are boxed in as well, having admitted that the previous round of quantitative easing didn’t egg the economy on (though since QE2 ended, conditions seem to have gotten worse), and that a new round would likely boost inflation more than growth.

In Europe, leaders always wait to the absolute last minute to apply a new bandage to whatever wound springs forth. Heck, many of them are still at the beach, while the crisis spreads from the likes of Greece and Ireland to the major economies of Spain and Italy.

Jean-Claude Trichet, the president of the European Central Bank, is spending his final months in office with a juggling act of buying up more peripheral bonds even as he’s laying the groundwork for one additional rate rise. Critics, for their part, say the new European Financial Stability Facility isn’t large or flexible enough to scare the bond vigilantes away from Italy and Spain. On the national level, policy makers are only slowly awakening from their slumber of what’s basically been a decade of stagnation. Read more about Trichet signaling bond buys amid crisis.

Even in China there are signs of slowdown, with the only real question being whether the country is in for a hard or soft landing. Turns out one-party politics is no walk in the park either.

Put all this together, and traders are rushing to safety. One problem: The crew doesn’t want to hand out life rafts, whether that’s the central bank of Switzerland and Japan trying to ward off the hot money bidding up their currencies, or custodial giant Bank of New York Mellon Corp.
BK, +0.16%
charging for big-ticket deposit increases. Read more about Bank of New York charging for big cash positions.

To use a different metaphor: Now would be a welcome time for a bazooka, in Hank Paulson’s parlance, but there doesn’t appear to be anyone willing to pull one out.

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